AJK Pharma believes that it is possible to increase sales if credit terms relaxed. The profit plan, based on the old credit terms, projected sales at Rs 2,000,000, a 40% gross profit while fixed cost is Rs 100,000, bad debts of 2% and an account receivable turnover of 10 times. The new policy is expected to increase sales to Rs 2,400,000. However the bad debt will rise to 2% of sales and account receivable turnover will be 6 times The target rate of return is 20%. Is proposal is feasible?

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To determine the feasibility of the proposed credit terms relaxation lets analyze the profit plan un... View the full answer